Federal Reserve Forecasts “AI Will Be Deflationary” To Boost Economy

The United States Federal Reserve have reasons to believe that Artificial Intelligence (AI) may lead to deflation, a sentiment that may trigger a boost in the economy.

Using AI to Boost U.S. Economy

During the recently held Federal Open Market Committee (FOMC) meeting, policy makers considered factors that could lead to disinflation in the future.

At first, factors like continued easing of demand–supply pressures in product and labor markets were listed. The participants also thought about factors such as lagged effects on wages and prices of past monetary policy tightening. Additionally, the delayed response of measured shelter prices to rental market developments, or the prospect of additional supply-side improvements were considered.

Minutes are dovish, and for the first time Fed says AI will be deflationary.

From the FOMC Minutes:

“Participants highlighted a variety of factors that were likely to help contribute to continued disinflation in the period ahead. The factors included continued easing of…

— zerohedge (@zerohedge) July 3, 2024

However, they reasoned that Artificial Intelligence –related technology could also go a long way in mitigating inflation. The application of this innovative technology could bring a significant boost in productivity to businesses and in turn, the economy. Also, the FOMC meeting participants observed that longer-term inflation expectations had remained well anchored.

This anchoring is viewed as underpinning the process to disinflation. Consequently, there is a core request for additional favorable data. This will serve as an assurance and confidence booster that inflation will head sustainably toward 2%.

The Appeal to Several Governments

Highlighting AI in the search for disinflation factors is an important push for the burgeoning technology niche. It suggest that AI is gradually gaining traction across several sectors and borders. The U.S. government may eventually giving the sector a shot especially as it has been pushing to regulate AI in its region.

In December 2023, the Biden administration embarked on a venture to revolutionize AI, particularly, its safety, security and trust. The focus is to develop critical standards for the safe deployment of generative AI within the nation. Markedly, Biden’s executive order on AI was the first to usher in the endeavor to safely regulate AI within the nation. This is in line with European Union’s effort towards AI.

In Europe, there are even guidelines to govern the responsible use of AI in journalism as adopted by the Council’s Intergovernmental Steering Committee on Media and the Information Society (CDMSI). This guidelines  upholds the principles of human rights, democracy, and the rule of law.

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